Brent Oil Trading

Brent Oil Trading

The more powerful our energy sources are, the more we advance into the future with confidence. It began with fire, continued with wind, and improved with steam. After learning how to control three of the four elements – fire, air, and water – we set our eyes on earth. When we successfully figured out how to take advantage of fossil resources, our lives were revolutionised with technological advancements in machinery, transportation, and everyday products. Crude oil is the main fossil resource and oil products are integrated in almost all aspects of human life. As the flagship of all oils, Brent Oil dominates the energy market. Governments, companies, investors, and traders around the world naturally swarm on Brent Oil like birds flocking to seeds in a city square.

What is Brent Oil?

 Brent Oil (ICE: B; NYMEX: BZ) is one of the hottest assets in the energy commodities market and a major type of crude oil which is used as the European price benchmark for oil trades. Approximately the two-thirds of all global crude oil trading is priced in reference to Brent Oil, making it also the global oil price benchmark. The name “Brent” is coming from the Brent Oilfield in Scotland, where the blend was originally produced. In 1976, when the UK oil industry was creating a naming standard for the oilfields, their methodology was to name the fields alphabetically in the order they were built. They chose to name fields after birds. Thus, the first field was called Auk, after the great auk penguin, and the second field was called Brent, after the brent goose.

Brent Oil blend is classified as sweet light crude oil based on its low sulphur content (sweet) and low density (light). Sweet light crude oil blends are ideal for the energy market as their refining produces more natural gas, gasoline and diesel than other blends. Brent is extracted from the North Sea coasts, between the United Kingdom and Norway, and therefore production and transportation costs are significantly low.

The History of Brent Oil

Brent Oil was originally traded in the London International Petroleum Exchange through open outcries. In 2005, oil trading activities were digitalised and moved to the electronic trading environment of the Intercontinental Exchange (ICE). Brent futures are traded both on ICE (ICE: B) and New York Mercantile Exchange (NYMEX: BZ) in the U.S. and have delivery dates for each month of the year. Until the beginning of the millennium, the barrel price of Brent Oil was trading below $40, after which it started to test whether it can break above. When the oil demand boomed in the emerging markets like China and India, the Brent Oil price per barrel gained momentum over the next four years and reached its all time high of $146.29/barrel in July 2008. However, the recession of 2007-2008 rode Brent Oil prices on a rollercoaster like the rest of the markets, as well. The +$100 gain per barrel of years were lost over the course of the next six months, and Brent Oil closed the year at $40.15 per barrel.  

 The European oil benchmark recovered more than $80 in the next two years to settle between $100 and $120. In 2014, oil price wars began as the Organization of Petroleum Exporting Countries (OPEC), the largest of its kind with 14 member countries, refused to cut down oil production and Brent Oil dropped below the $40 mark in 2016. It had managed to rise back above $80/barrel level, but Coronavirus crisis in 2020 caused Brent prices to dip rock bottom with the rest of the oil market.

Brent Oil vs. WTI Oil

West Texas Intermediate (WTI) is the American benchmark for crude oil. Brent Oil and West Texas Intermediate (WTI) Oil dominate the pricing practices in the crude oil markets. However, their prices vary.

• Price reference of Brent
  Europe, Global

• Price reference of WTI 
  USA 

• Blend type of Brent
  Sweet Light Crude

• Blend type of WTI
  Sweet Light Crude

• Ideal for Brent
  Gasoline production

• Ideal for WTI
  Gasoline production 

• Brent is Extracted from
  The North Sea coasts

• WTI is Extracted from
  Landlock zones in U.S. Midwest

• Advantage of Brent
  More accessible than WTI, cheaper to produce & transport

• Advantage of WTI
  Sweeter and lighter than Brent, more ideal for gasoline

The price differences between Brent and WTI crude oils can occur due to physical differences between blends, changes in supply-and-demand, inventory numbers, improvements in extraction and transportation methods, developments in refinery technologies, and geopolitical events in the oil production zones such as political tensions, natural disasters and wars. Although the production rate and the barrel price of Brent are significantly higher, oil resources in the North Sea are depleting rapidly.

On the other side of the Atlantic, the American Shale Revolution is expediting the development of WTI drilling and fracking technologies, while increasing the production rates and decreasing the costs. As a result, WTI barrel price is becoming cheaper than Brent and constituting a strong competition as a global benchmark. Until 2010, Brent crude prices were usually lower than WTI crude. The difference between their barrel prices varied around $3. In the second half of 2010, Brent started gaining momentum and was trading $11 higher than WTI at the end of February 2011. The divergence peaked at $23 in August 2012. Since then, the price difference gradually declined and settled around $10 per barrel.

How to Trade Brent Oil?

Brent Crude Oil is the apple of the energy market’s eye with its strong demand levels and high regard as the global benchmark. As one of the leading commodities around the world, liquidity is always high. However, the oil prices are not short of volatility as the value is largely determined by the supply and demand levels of the oil products and market sentiment towards them. Brent futures are traded in the ICE and NYMEX with monthly delivery dates. However, participating in these exchanges are incredibly costly and require meeting rigorous criteria such as professional license and minimum capital amounts. As Forex traders, we can enjoy the benefit of Brent Oil CFD trading to avoid all that hassle and still capitalise on the Brent price movements.  

Brent Oil CFD Trading Information

• Exchange (Ticker): ICE (B), NYMEX (BZ)
• Trading Hours (GMT): 00:00 – 21:59
• MT4 & MT5 Symbol: BRENT_OIL
• Contract Size: 1,000 barrels
• Valuation: U.S. Dollars
• Increment: 0.01
• Leverage (Pro): Up to
• Leverage (Retail): Up to
• Spread (Pro): $0.015 over market
• Spread (Retail): $0.02 over market

Brent Oil Fundamental Analysis

Fundamental analysis of Brent Oil mainly focuses on the factors which can affect the supply and demand levels, decisions by large oil cartels like OPEC, and economic events in the USA. However, the most important factor to consider is the market sentiment as the price of oil is mostly determined by the trades in the futures market.

Supply and Demand

Oil refining yields a wide range of products such as heating energy, vehicle fuel, plastic as raw material, machine oil, and asphalt. The demand for oil is generated by the activity in these sectors. As the demand increases, Brent Oil price increases, as well. Oil companies would refine more crude oil, and the supply will drop. However, if the demand falls, the oil refining or processing rates would drop, and the amount of stored crude oil will increase, leading to a supply glut and reducing the price

OPEC

Organization of Petroleum Exporting Countries (OPEC) has 14 members in Africa and the Middle East, which represent 44% of daily oil production and 73% of global oil reserves, led by Saudi Arabia. In 2016, ten more countries led by Russia joined them to form OPEC+ cartel. Their power on the oil supply allows them to control the global oil prices, including Brent, by deciding to cut or hike oil production rates.

Geopolitical Events

Most OPEC+ countries are in geopolitically tense regions. Social uprisings and wars between producing countries can disrupt the oil production and trade processes, discouraging energy investors from maintaining their short-term investments in Brent Oil.

U.S. Economic Reports

All assets in the Energy industry are traded globally against the U.S. Dollar. Therefore, when the value of USD changes after economic reports from the U.S., the price of Brent Oil changes, too. For instance, if the U.S. Federal Reserve decides to cut the interest rate, USD would lose value and Brent Oil would rise.

Market Sentiment

Market sentiment refers to how investors, who trade oil futures, perceive the future supply and demand rates. Investors analyse the current oil industry events and predict potential outcomes. They invest in future delivery contracts accordingly. Thus, the future price of Brent Oil (and other oil products) is already being determined in the futures market. Therefore, market sentiment towards possible outcomes is more influential than the actual outcomes of events and reports.

Brent Oil Technical Analysis

Brent Oil is a highly volatile commodity which reacts quickly to the market events. Therefore, our technical analysis should utilise indicators which would inform us about price targets, momentum, and volatility.

Support & Resistance

The price levels which Brent Oil struggled to break beyond in the past like $40 and $80 marks. S&R levels in the longer timeframes such as monthly and yearly could inform us better about the price targets when the oil prices are gaining momentum towards a specific direction.

Commodity Channel Index (CCI)

CCI is a momentum oscillator which is used to understand uptrends and downtrends. When CCI is approaching +100, a strong uptrend can be forming; if it is reaching -100, a downtrend can emerge. Above +100 or below -100, the market would be overbought or oversold, and the momentum of the trend would start fading away.

Average True Range (ATR)

ATR is a volatility indicator which shows whether the current price volatility is above or below the average daily volatility of a past period, regardless of the trends. ATR is used in conjunction with trend signals; if the current volatility has already surpassed the daily average, the price movements could be slowing down, and any signal might be misleading.

Why Trade Brent Oil CFDs with AvaTrade?

Brent Oil CFDs allow us to capitalise on the price movements while eliminating the commitment and high margins required in futures contracts. The volatility in the oil markets generates numerous opportunities every day, especially when the global economic conditions are uncertain. Well, when are they not, anyways? Obviously, such uncertainty comes at the price of taking risks. However, so long as we have the support of AvaTrade’s expertise and advanced trading tools, we can trade with confidence under the most advantageous Brent Oil CFD trading conditions.

• Buy Long, Sell Short: 
  CFD trading enables taking advantage of opportunities both when Brent Oil prices are rising and falling.
• Globally Secure: 
  AvaTrade is regulated in the UK, the EU, Australia, Japan, and the Middle East, providing a safe & secure trading environment everywhere.
• Best Trading Conditions: 
  Professional accounts trade Brent Oil with 100:1 leverage and $0.015 spread; Retail accounts trade Brent Oil with 10:1 leverage and only $0.02 spread.
• Trade Anytime, Anywhere: 
  We are always on top of the Brent Oil price movements with MetaTrader 4 and MetaTrader 5 trading platforms, and AvaTradeGO mobile trading app.
• Risk Management Simplified: 
  AvaTrade’s latest innovation, AvaProtect, is a personalised risk management tool which allows us to hedge our positions using simplified options trading.
• Wide Asset Selection:
  you can access a choice of trading instruments, including stock trading, cryptocurrencies, bonds, indices trading and ETFs.
• Exemplary Support: 
  Multi-award winner AvaTrade customer support team assists traders via phone, live chat, and email.

Energising Our Portfolio with Brent Oil

The uniqueness of Brent Oil as a financial asset is based on its high volatility and high liquidity. Both CFD traders and future investors know that it’s a rare combination to find. Whether it rises or falls, we are happy with the volatility as the best opportunities emerge, especially when the times are rough. Now that we learned how to analyse Brent Oil and what to expect in the different oil market conditions let’s make our knowledge work for us and start to trade with confidence!

Brent Trading Main FAQs

• What is the difference between Brent oil and WTI oil?

  Aside from the obvious price difference between Brent crude and WTI crude, there are some underlying physical differences between the two as well. While both varieties are considered “light”, WTI is slightly the lighter of the two. In addition, WTI has a lower sulphur content, making it the sweeter of the two types. There are other differences that account for the price difference and are related to the fact that WTI is extracted from locations in the United States, while Brent crude comes from the North Atlantic

   
• Why is Brent crude oil more expensive?

  The shale revolution in the U.S. has led to huge production increases and an oversupply of crude, particularly in North America. Because of that the price of WTI crude, which is the preferred North American benchmark, has been depressed. While Brent has also seen its price depressed to some extent, the drop hasn’t been as great, because Brent oil is typically sold into Europe and Asia. The spread between the two has been contracting and could get even closer however as the U.S. export of oil has been increasing.

   
• What is the best strategy for trading Brent oil?

  Crude oil differs from other commodities and assets in that its price is heavily influenced not only by actual supply and demand, but also by trader perceptions of supply and demand. That crucial difference means that even minor news events can have a major impact on the price of oil. Brent oil also tends to trend very strongly. These two characteristics make trend following strategies best when trading Brent oil, especially when combined successfully with a breakout or reversal strategy.

   

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